commissioner.org
| Source | Jim Devine |
| Date | 09/02/18/18:43 |
| New York TIMES
Obama Unveils $75 Billion Plan to Fight Home Foreclosures By SHERYL GAY STOLBERG and EDMUND L. ANDREWS MESA, Ariz. — President Obama pledged on Wednesday to help as many as 9 million American homeowners refinance their mortgages or avert foreclosure, an initiative he said would shore up distressed housing prices, stabilize neighborhoods and slow a downward spiral that he said was "unraveling homeownership, the middle class, and the American Dream itself."... The plan has three basic components. One would help homeowners who continue to make loan payments on time, but are paying high interest rates and would otherwise not be able to refinance because they do not have enough equity or their houses are worth less than they borrowed. A second would assist people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners. The third would try to assure there is plenty of credit available for mortgages by giving $200 billion of additional financial backing to Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies. The announcement came a day after Mr. Obama signed his $787 billion economic recovery package, and administration officials like Timothy F. Geithner, the Treasury secretary, made the case that they will work in tandem. In announcing the housing plan, Mr. Obama struck a populist note, criticizing speculators and "lenders who knowingly took advantage of homebuyers" with the same vehemence he used in going after Wall Street bankers for giving themselves bonuses as their companies were seeking government help. "It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell," he said, adding, "And it will not reward folks who bought homes they knew from the beginning they would never be able to afford." The plan will take effect March 4, when the administration publishes detailed rules explaining it. Most of the plan can be enacted by Mr. Obama though his executive powers, although part of it — including changing the bankruptcy laws to allow homeowners to seek changes to their mortgages through bankruptcy proceedings — will require legislation. Mr. Geithner said the administration is already in discussions with lawmakers on how to proceed. In allowing homeowners who are not delinquent to qualify, the plan marks a sharp break from the housing policies of Mr. Obama's predecessor, George W. Bush. Mr. Geithner and the new Housing secretary, Shaun Donovan, said the administration's research had determined that, with 10 percent of American homeowners either in foreclosure or in danger of it, it was better to intervene early. Mr. Obama's plan boils down to a handful of basic components that are aimed at two distinct groups of homeowners: an estimated 3 million or 4 million distressed homeowners who are in danger of foreclosure; and a potentially much larger number of people who are not in immediate distress but are paying rates higher than available to credit-worthy borrowers now and who would likely be resentful about bailouts going to others. To help distressed homeowners, Mr. Obama will create a $75 billion program to subsidize loan modifications that would reduce a family's monthly payment to as little as 31 percent of his or gross monthly income. As envisioned, a mortgage lender would have to first make enough concessions to reduce a borrower's payments to 38 percent of monthly income. The government will offer a series of financial incentives to encourage lenders to make the concessions. At that point, the government would match, on a dollar-for-dollar basis, additional reductions to bring the payment as low as 31 percent of monthly income. The changes could be accomplished in several ways, from stretching out the repayment period of a loan to reducing the interest rate or reducing the outstanding principal. But the plan would not come close to preventing all foreclosures, because lenders would still have the last word on whether to make concessions. If a lender decides that the cost of the concessions is higher than the cost of foreclosing, even with the government subsidies, then a borrower would probably still lose the property. That could be the case for many people who have lost jobs in the automobile industry and have little hope of being rehired. A family whose income has dropped by half and whose mortgage payment might now equal 100 percent of its monthly income might well be out of the program's reach. The incentives for mortgage-servicing companies to tilt their calculation in favor of loan modification include a $1,000 fee for each mortgage they restructure as well as up to $1,000 a year for the next three years if the borrower remains current. In addition, the government would pay up to $1,000 a year to reduce the size of a homeowner's mortgage, if the borrower remained current. A second major component of Mr. Obama's plan is aimed at most homeowners who are not behind on their payments, but whose homes may be worth less than the outstanding amount on their mortgage or no longer worth enough that the homeowners have sufficient equity to refinance. It could also assuage homeowners who angry that seemingly irresponsible neighbors are being rescued. For this group, Mr. Obama's plan would make it much easier to refinance their homes and take advantage of the extremely low interest rates now available. The plan would apply to people with fairly traditional loans that are owned or guaranteed by Fannie Mae and Freddie Mac. Anybody with such a mortgage would be allowed to refinance at today's rates, which are about 5 percent, without needing a 20 percent downpayment. Normally, Fannie Mae and Freddie Mac require that such borrowers pay private mortgage insurance, which can add hundreds of dollars to a monthly payment. In effect, the government would be taking on the added risk, at no charge, that comes from lending to people with no financial stake in their house. A third and a more vague component of Mr. Obama's plan is aimed at propping up the mortgage market as a whole by having Fannie Mae and Freddie Mac step up their purchases of mortgages and mortgage-backed securities. To make that possible, the Treasury Department will use its authority under a housing bill passed last year to provide more capital to both companies. The Bush administration had pledged to provide up to $100 billion to each company to keep it solvent. The Obama plan would increase that to $200 billion. The plan would also allow the two mortgage companies to expand the size of their mortgage portfolios. |
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